Assignment for Contemporary Financial Accounting Module
Assignment for Contemporary Financial Accounting Module
On 1 July 2016, Parrot Ltd acquired 80% of the share capital of Squirrel Ltd for $264
800. On that date, the statement of financial position of Squirrel Ltd consisted of:
Share capital $250 000
General reserve 10 000
Asset revaluation surplus 15 000
Retained earnings 10 000
Liabilities 180 000
$465 000
Cash $ 35 000
Inventories 70 000
Land 65 000
Plant and equipment 300 000
Accumulated depreciation – plant and equipment (130 000)
Trademark 100 000
Goodwill 25 000
$ 465 000
At 1 July 2016, all identifiable assets and liabilities of Squirrel Ltd were recorded at fair
value except for:
Carrying amount Fair value
Inventories $ 70 000 $ 80 000
Land 65 000 85 000
Plant and equipment (cost
$200 000)
70 000 90 000
Trademark 100 000 110 000
During the year ended 30 June 2017, all inventories on hand at the beginning of the year
were sold, and the land was sold on 28 February 2017 to Outback Ltd for $80 000. The
plant and equipment had a further 5-year life beyond 1 July 2016 and was expected to
be used evenly over that time. The trademark was considered to have an indefinite life.
Any adjustments for differences at acquisition date between carrying amounts and fair
values are made in the consolidation worksheet. Parrot Ltd uses the partial goodwill
method. The tax rate is assumed to be 30%.
Financial information for Parrot Ltd and Squirrel Ltd for the year ended 30 June 2017
is shown below.
Parrot Ltd Squirrel Ltd
Sales revenue $200 000 $172 000
2
Other income 75 000 30 000
275 000 202 000
Cost of sales 162 000 128 000
Other expenses 53 000 31 000
215 000 159 000
Profit from trading 60 000 43 000
Gains/(losses) on sale of non-current
assets
10 000 5 000
Profit before tax 70 000 48 000
Income tax expense 20 000 18 000
Profit for the period 50 000 30 000
Retained earnings (1/7/16) 30 000 10 000
Transfer from general reserve — 8 000
80 000 48 000
Interim dividend paid 12 000 10 000
Final dividend declared 6 000 4 000
18 000 14 000
Retained earnings (30/6/17) $ 62 000 $ 34 000
Asset revaluation surplus (1/7/16) $ 15 000
Gain on revaluation of specialised
plant
5 000
Asset revaluation surplus (30/6/17) $ 20 000
During the year ended 30 June 2017, Squirrel Ltd sold inventories to Parrot Ltd for
$8000. The original cost of these items to Squirrel Ltd was $5000. One-third of these
inventories were still on hand at the end of the year.
On 31 March 2017, Squirrel Ltd transferred an item of plant with a carrying amount of
$10 000 to Parrot Ltd for $15 000. Parrot Ltd treated this item as inventories. The item
was still on hand at the end of the year. Squirrel Ltd applied a 20% depreciation rate to
this type of plant.
Required:
1. Prepare the acquisition analysis and all consolidation worksheet entries
(narrations not required) necessary for preparation of the consolidated financial
statements for Squirrel Ltd and its subsidiary for the year ended 30 June 2017.
2. Prepare the consolidated statement of profit or loss and other comprehensive
income for Parrot Ltd and its subsidiary at 30 June 2017
